- Date : 04/04/2022
- Read: 6 mins
Debt can be scary, and it can take a toll on your mental health. If you are looking to dig your way out of debt and live peacefully, here are 8 practical ways to help you out.
Staying in debt for a long time can hamper your journey to financial freedom, making life harder for you. Having debt on the head is quite stressful, and it is better to get rid of it as soon as possible.
Everyone takes debt for different reasons like someone wants to buy a car or house, so they finance it with a debt, and some people are stuck with credit card debt. No matter your debt type, it is the best option to dig yourself out of it. You are here because you are willing to dig yourself out of debt through 8 practical methods.
Getting out of debt moves you towards leading a peaceful life, and you can make investments that can secure your old age. Moreover, being debt-free provides a sense of pride for yourself, and it helps to keep you happy. So without wasting much time, let's explore the practical ways to dig yourself out of debt.
8 Ways To Get Out of Debt
1. Gather Your Data
The first step in getting out of your debt is to get a clear understanding. Without a clear understanding of your debt, you will not know which debt to clear first and which can be addressed later. While getting your debts together, try to list as much information as possible. This analysis will act as a base for all the other steps you follow. Moreover, sound research and information gathering can surely help you get out of debt sooner.
2. Make A Financial Inventory
A financial inventory is a one-stop solution for all your financial documents. While you plan to get out of debt, creating a financial inventory is crucial. It can help you consolidate all the important documents in one place and provide a better outlook on the finances. Moreover, a financial inventory lets you keep a close eye on your debt and other accounts without going to different places.
3. Lower Your Interest Rates
Another tried and tested way of getting rid of debt is to consolidate it. Every debt has a different interest rate, and each of them affects your pocket differently. Credit cards are widespread today, and they have the most impactful debt with 36% to 46% interest per annum, whereas home loans are available at only 8% to 10%. If you have a blend of different debts, the best thing you can do is to take another lower interest rate debt to pay off other high-interest debts.
For example, you can pay off credit card debt by taking a personal loan, usually with an interest rate of 12% to 16%. Doing this will help you decrease interest payments and make you debt-free sooner. Moreover, compared to the longer time horizon, you can save a lot by debt consolidation, and it also provides peace of mind. Also, you no longer have to remember all the different payment dates and can easily follow only one date for tracking.
4. Pay More Than The Minimum
Another way that will help you get rid of debt sooner is by paying more than the fixed amounts. Suppose you have a car loan EMI for Rs 10,000 and you are left with spare funds of around Rs 20,000 after your expenses, then a significant portion of these surplus funds should go in paying off the loan.
When you start paying above the fixed amount, you begin to pay up the loan sooner, and the loan amount gets completed before the stipulated time. Doing so will also save you money, as you eliminate a longer duration that adds up the interest, and being free in a short time will open doors for other investment options for you.
5. Increase Your Income
Another typical and one of the best ways to dig yourself out of debt is to start earning more. You can make more by upskilling and getting more promotions at your office. On the other hand, you can also switch jobs in a short period to quickly climb the ladder and earn more.
People also advise that you can look for a part-time job or do some freelancing. Do this only if you are allowed by your full-time employers, or you might lose your first job. Doing a part-time job or freelancing in your free time can provide you with some extra cash, and it can also help you build more skills to work with your full-time employment.
Also Read: Can high income alone help you become rich?
6. Create A New Budget
Having a budget is as essential as having an income while digging your way out of debt. If you really want to get rid of the debt, you'll need to create an extensive budget that outlines all your needs and controls your spending.
Without a budget, you'll keep on spending aimlessly and will have less money to pay back, which will burden you with more debts and stress. Moreover, when you create a budget, you also understand your expenses, and you can stop them if they are unreasonable.
7. Cut Unnecessary Expenses
You'll need a budget and a strong discipline to go debt-free and to cut down unnecessary expenses. When you keep on spending lavishly on things you don't need, you'll have to take unnecessary debts to cover your wants and desires. This creates a loop of debt, and you cannot escape debt after some time. So, if you sincerely plan to dig your way out of debt, ensure that you cut down all the unnecessary expenses and devote that money towards debt payment.
8. Create An Emergency Fund
Emergency funds are a good way to keep you safe from emergency spending that significantly impacts your wallet. If you want to get rid of debt, start saving some money aside in an emergency fund.
Most people are burdened by debt because of the emergency and unplanned expenses they face. If you've created an emergency fund, you can use the money in emergencies and avoid taking on more debt. The above points discuss some of the simplest ways to get out of debt. All these are practical steps, and you can start following them today to become debt-free sooner.